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Canadian Culture in a Global World

New Strategies for Culture and Trade Canadian Culture in a Global World

The Cultural Industries Sectoral Advisory Group on International Trade February 1999

The Cultural Industries Sectoral Advisory Group on International Trade (SAGIT) is part of the federal government's advisory system on international trade. It provides a means for officials from the Department of Foreign Affairs and International Trade and the Department of Canadian Heritage to consult with representatives of Canada's cultural industries.

Executive Summary

As a nation, Canada has developed a vibrant cultural sector, with numerous cultural institutions, a diverse publishing industry, a talented music industry, a dynamic cultural new media industry and critically acclaimed film and television industries.

Culture is the heart of a nation. As countries become more economically integrated, nations need strong domestic cultures and cultural expression to maintain their sovereignty and sense of identity. Indeed some have argued that the worldwide impact of globalization is manifesting itself in the reaffirmation of local cultures.

Canadian books, magazines, songs, films, new media, radio and television programs reflect who we are as a people. Cultural industries shape our society, develop our understanding of one another and give us a sense of pride in who we are as a nation. Canada's cultural industries fulfil an essential and vital role in Canadian society.

In their effort to reach audiences, our cultural industries have always risen to the challenge of competition from foreign cultural producers. Their ability to create an enduring place in our lives is dependent on the creativity and talent of Canada's artists, creators and producers. It also depends, in part, on government policies and programs that aim to promote Canadian culture.

The Canadian government uses a combination of financial incentives, Canadian content requirements, tax measures, rules on foreign investments and intellectual property tools to promote Canadian culture. Working together, government and the cultural sector have been able to develop a policy and regulatory environment that ensures that Canadians have access to the best the world has to offer while preserving a space for Canadian culture.

Pressures for Change

Over time, Canada's cultural policies have evolved, constantly adapting to changes in both the domestic and the global markets. As we approach the beginning of the 21st century, massive changes - driven by technology and "freer" trade - are creating both opportunities and challenges for our cultural industries.

Digitization and the convergence of the broadcasting, cable, satellite and telecommunications sector are creating new technologies, which will compete with existing distribution systems. At the same time, there will be even greater opportunity to distribute Canadian content both at home and abroad. >

Emerging technologies are offering Canadians new communications tools but are also challenging the government's ability to enforce regulations designed to ensure that Canadians have access to Canadian cultural products. (Note: Here and throughout the paper cultural "products" refers to both goods and services.)

With the growth of multinational corporations and the vertical integration of entertainment, distribution and delivery systems and products, national policies are shifting and adapting to address these changes.

The trend to more open markets and a free trading world make it more challenging to negotiate trade agreements that recognize cultural diversity and the unique nature of cultural products.

These changes are already having an impact. Over the past few years, cultural policies designed for our own cultural industries have come under close international scrutiny. As a nation, we believe in the benefits of open markets, but we are concerned about the effect that global trade, combined with rapid technology change, may have on our ability to promote Canadian culture.

How should Canada respond to these pressures? What is the right balance between domestic policies that promote Canadian culture and trade policies that enable Canada to prosper in a free trading world?

Time for New Strategies?

Members of the Cultural Industries Sectoral Advisory Group on International Trade (SAGIT) have examined the issues facing cultural industries. In this paper, the SAGIT describes the cultural policies now in place in Canada, cultural policies used by other countries, and the growing pressure from technology and international trade agreements. It then sets out options for Canada's cultural trade policy.

In the SAGIT's view, there are two main approaches:

the cultural exemption strategy used in the past, which takes culture "off the table" in international trade negotiations;

a new strategy that would involve negotiating a new international instrument that would specifically address cultural diversity, and acknowledge the legitimate role of domestic cultural policies in ensuring cultural diversity.

According to the SAGIT's analysis, there is growing concern worldwide about the impact of international agreements on trade and investment on culture. Canada has reached an important crossroad in the relationship between trade agreements and cultural policies. The tools and approaches used in the past to keep cultural goods and services from being subject to the same treatment as other goods and services may no longer be enough. As is clear from events over the past few years, the cultural exemption has its limits.

It is time for Canada to make some crucial decisions. Do we define ourselves simply as the producers and consumers of tradeable goods and services? Or are we prepared to step forward and reaffirm the importance of cultural diversity and the ability of each country to ensure that its own stories and experiences are available both to its own citizens and to the rest of the world?

Members of the SAGIT believe it is time to step forward. Just as nations have come together to protect and promote biodiversity, it is time for them to come together to promote cultural and linguistic diversity. As Sir David Puttnam, President, Enigma Productions, wrote Footnote 1

"Stories and images are among the principal means by which human society has always transmitted its values and beliefs, from generation to generation and community to community. Movies, along with all the other activities driven by stories and the images and characters that flow from them, are now at the very heart of the way we run our economies and live our lives. If we fail to use them responsibly and creatively, if we treat them simply as so many consumer industries rather than as complex cultural phenomena, then we are likely to damage irreversibly the health and vitality of our own society."

Canada has long been a leader in cultural policies. The time has come for Canada to call on other countries to develop a new international cultural instrument that would acknowledge the importance of cultural diversity and address the cultural policies designed to promote and protect that diversity. Such a move will enrich us all.

A New Instrument: What Would It Do?

A new international instrument on cultural diversity would:

recognize the importance of cultural diversity;

acknowledge that cultural goods and services are significantly different from other products;

acknowledge that domestic measures and policies intended to ensure access to a variety of indigenous cultural products are significantly different from other policies;

set out rules on the kind of domestic regulatory and other measures that countries can and cannot use to enhance cultural and linguistic diversity; and

establish how trade disciplines would apply or not apply to cultural measures that meet the agreed upon rules.

Members of the Cultural IndustriesSectoral Advisory Group on International Trade (SAGIT)

Richard Stursberg, President, Canadian Cable Television Association and Chairman of the Canadian Television Fund

Susan Gillian Whitney, President, Susan Whitney Gallery

Why Do We Need Canadian Culture?

It is time for Canada to make some crucial decisions.

Do we define ourselves simply as the producers

and consumers of tradeable goods and services?

Or are we prepared to step forward ...

Why Do We Need Canadian Culture?

Our culture -- our ideas, songs and stories -- gives meaning to who we are as Canadians. Through cultural products, such as sound recordings, books and films, we express ideas and perspectives, and we share stories and images that are uniquely Canadian -- among ourselves and with the rest of the world. Cultural products are "brain and soul foods" that help us communicate with others and share differing views. They entertain, and they inform. They help shape our sense of identity. They add richness to our lives.

In Canadian books, magazines, songs, films and radio and television programs, we are able to see and understand ourselves. We develop a more cohesive society and a sense of pride in who we are as a people and a nation.

Over the past 60 years, our cultural industries have come to play a vital role in:

an extensive sound recording industry that, in 1995-96, accounted for $56 million in wholesale revenues for recordings with Canadian content or artist, $14 million in the sale of masters, licensing fees and mechanical/publishing royalties. About 13.8% of total sales were Canadian sound recordings -- up from 10% in 1990-91.

a magazine industry that, in 1994-95, published and distributed 1,404 different publications.

a book publishing industry, which consists of 562 companies, and plays an important role in developing Canadian authors. In 1996-97, the Canadian industry published 11,400 new French and English titles; 71% were by Canadian authors.

a growing film/video and television industry, which produces, distributes and sells its products in the Canadian market and abroad. The industry consists of both small and larger, publicly traded companies. Production revenues in 1995-96 were $879.2 million, up from $581.3 million in 1990-91.

a broadcasting industry that, with the exception of the United States, leads the world in the number of domestic services it offers. In recent years, the industry has created new pay and specialty television services that have doubled the number of hours of Canadian programming now available to viewers.

an emerging multimedia industry, which combines three industries -- computers, telecommunications and culture -- to develop and distribute new products.

Culture in Our Economy

Our cultural industries not only help us exchange ideas and experiences, they make a significant contribution to our economy. Over the years, the number of companies and individuals involved in producing cultural products has grown dramatically. For example, in the 1950's, the broadcasting industry was dominated by the CBC. Since that time, the number of private broadcasters and independent producers of programs has grown significantly, as has the impact of their activities on the economy.

The cultural sector is also an important source of economic growth. Between 1989 and 1994, it grew by 9.9%, outstripping the growth in other key sectors, such as transportation, agriculture and construction.

Looking only at the core activities -- the creation, production, distribution and export of cultural industries, broadcasting, arts and heritage -- the cultural sector contributed $15.3 billion to the Canadian economy in 1994-95. Cultural institutions, theatre productions and other activities also account for a large portion of the tourist dollars spent in Canada each year ($41.8 billion in 1996).

In 1994-95, the cultural sector provided direct full and part-time jobs for 610,000 people -- or almost 5% of Canada's labour force. Between 1981 and 1991, the country's cultural labour force grew 32%, while the population as a whole grew only 12%. Between 1991 and 2005, the arts, culture, sports and recreation sectors are expected to increase about 45%, becoming the second fastest growing employment sector in the country.

From 1990 to 1994, the cultural labour force increased 5.6%, while total employment dropped 0.5%. Unlike other industries, employment opportunities in the cultural sector remained high during the last recession and have continued to grow throughout the current recovery.

Many of the jobs in the cultural industries are knowledge-based. They require creativity, critical thinking and the knowledge and skills to use advanced technology. People who are able to nurture this combination of creativity and high-tech skills are not only able to create the cultural products that add value to our lives, they are highly marketable in other fields. Cultural industries are a driving force in technological innovation. Compared to other sectors, more people working in culture fields are successfully self-employed.

What is Culture?

According to UNESCO, culture includes cultural heritage, printed matter and literature, music, the performing and visual arts, cinema and photography, radio and television, and socio-cultural activities. Canadian Cultural Policy

Canada's cultural sector is a vibrant and diverse community.

The goal of the Canadian government's cultural policy is to foster an environment in which Canada's cultural products are created, produced, marketed, preserved and shared with audiences at home and abroad, thereby contributing to Canada's economic, social and cultural growth.

The Impact of Canada's Cultural Policy Objectives

Within the larger goal of fostering Canadian culture, the country's cultural policy objectives are:

to develop Canadian cultural content; and

to ensure that Canadian cultural content is available to all Canadians -- without limiting their access to foreign cultural products.

As a result of these policy objectives, Canada has one of the most open markets for foreign cultural goods in the world. While an open market clearly has its advantages, it also creates pressure on local cultural industries.

For example, because of economies of scale, it can be extremely difficult for small Canadian firms to compete with the large, well-capitalized foreign cultural producers for a place within our own market. Producing for a small market is costly. Canadian companies have few opportunities to achieve cost efficiencies, and production costs can be a significant barrier.

In contrast, other countries have markets many times larger than Canada's. They have more opportunities to recover their costs and can provide less expensive products. For example, it can cost about $1 million to produce an hour of prime-time television drama in Canada, and only one-tenth of that amount to purchase an hour of an American drama.

Our proximity to the United States (80% of Canadians live near the U.S. border) and the fact that we share a common language makes it very easy for English-speaking Canada to become an extension of the American market and for American cultural products to spill over the border. This is not the case in the Canadian French language market, which has the "natural buffer" of a different language.

85% ($165 million) of the revenues from film distribution in Canada; and

between 94 and 97% of screen time in Canadian theatres. The situation is most extreme in the film industry where the Hollywood studios have historically treated Canada as part of the U.S. market.

Considering the size and openness of our market, Canada has developed a relatively strong cultural sector. The success that we have managed to achieve in the competitive Canadian market is due to:

the dedication, talent and skills of Canadian artists, creators, producers and distributors, and

the sector's ability to adapt to new technologies, increase its capacity and improve the quality of its products.

We have good people, doing good work, who continue to strive, to learn and to develop.

The growth and diversity in our cultural industries is also due, in part, to cultural policies that nurture and promote Canadian culture.

Promoting Canadian Culture

While Canada believes its citizens should have access to foreign cultural goods, the government also recognizes that we need space for our own voice. Our culture is an integral part of who we are.

Sharing stories and ideas and creating a better understanding among people in Canada is an effective way to build a healthy multicultural society. The government, as steward of our national identity, promotes cultural activities that help build a sense of community.

Culture is also a critical tool in the task of nation building. Canadian culture represents the values that make us unique from other nations. The Canadian government, like governments in other countries, recognizes that cultural diversity, like biodiversity, must be preserved and nurtured. As the world becomes more economically integrated, countries need strong local cultures and cultural expression to maintain their sovereignty and sense of belonging.

For a culture to thrive, it needs a supportive distribution system and investment infrastructure, as well as a stimulating environment for creators and artists.

The Canadian government invests in promoting culture, just as it invests in other activities that benefit its citizens, such as protecting the public health, protecting the environment and maintaining a defense force. In this way, the government acknowledges that cultural products are not simply commodities that can be packaged and sold. Cultural goods and services are different from the goods and services of other industries, and should be treated differently.

Canada's Cultural Policy Toolbox

Canada has developed a policy and regulatory environment that gives Canadians a worldwide choice of cultural products, and still allows us to maintain our cultural diversity.

In the past, the government tended to rely on subsidies to support the cultural industries and achieve the country's cultural objectives. Over time, government support has evolved to take the form of tax and investment measures, coupled with regulatory measures in the tv, film, music and book publishing industries. Border measures (e.g., tariffs) were used in the past, but these measures are gradually being phased out.

Canada's current policies, which are intended to encourage the creation, production and distribution of Canadian cultural products in the Canadian marketplace, can be grouped into the following "tools:"

Financial and program incentives

Canadian content requirements and other regulatory support mechanisms

Tax measures

Foreign investment and ownership

Measures to protect intellectual property

The Principles Guiding Canada's Cultural Policies and Programs

Freedom of expression.Canadians live in a free and democratic society where freedom of cultural expression is both necessary and desirable.

Freedom of choice. Canadians are able to choose from a broad range of domestic and foreign cultural goods. Canada's domestic market is open to the world.

Access. The government uses policy tools, such as regulation and support, to maintain a place for Canadian cultural products in the Canadian market, and to give Canadians ready access to their culture.

Cultural diversity. Canada is a diverse, multicultural nation, and its cultural products reflect that diversity. Products are developed to support the two linguistic markets and the country's many regional and local services.

Partnerships. The federal government on its own cannot achieve a strong, prosperous culture in Canada. The federal government works in partnership with provincial and municipal governments and with the private sector to nurture and promote Canadian culture.

Canada's Cultural Policy in Action

The Broadcasting Act (1991), which sets out the Broadcasting Policy for Canada, strives to create an open, commercially driven broadcasting system that maximizes consumer choice, while providing a wide variety of content and ensuring a place for Canadian voices. The Act states that: ... the Canadian broadcasting system should serve to safeguard, enrich and strengthen the cultural, political, social and economic fabric of Canada, and encourage the development of Canadian expression by providing a wide range of programming that reflects Canadian attitudes, opinions, ideas, values and artistic creativity.

... each broadcasting undertaking shall make maximum use, and in no case less than predominant use, of Canadian creative and other resources in the creation and presentation of programming ...

... It is hereby declared as the Broadcasting Policy for Canada that the programming provided by the Canadian Broadcasting System ... should be drawn from local, regional, national and international sources.

1. Financial and program incentives

The government recognizes that, to give Canadians real choice, the market must have a range of Canadian products. However, cultural products are often costly to produce. A multimedia product can cost anywhere from $200,000 to $3 million, depending on its quality and complexity. It costs a minimum of $1 million to produce an hour of prime time television programming, and feature film costs can run much higher. Many Canadian cultural firms are small and do not have ready access to capital.

One of Canada's important cultural policy instruments is the CBC/SRC. Like many other countries, Canada actively supports the public broadcasting system that plays a key role in promoting, producing and exhibiting Canadian cultural products. Each year, Parliament provides about $1 billion to support radio and television programming in both languages.

Government supports the cultural industries by providing both direct and indirect subsidies to help develop Canadian products. For example:

In 1972, the Canada Council developed grant programs to support the publishing industry.

In 1979, the federal government introduced the Book Publishing Industry Development Program, which provides financial assistance through three funding initiatives: Aid to Publishers; Aid to Industry and Associations; and International Marketing Assistance.

In 1986, the government established the Sound Recording Development Program (SRDP) to support the production, promotion, marketing and distribution of Canadian music products as well as the development of industrial expertise. In 1997, annual funding for the SRDP was $9.45 million.

Telefilm Canada's Feature Film Fund and Feature Film Distribution Fund provided $22 million and $10.3 million respectively to support the film industry in 1996-97. Telefilm also provides a Loan Guarantee Program and a Production Revenue Sharing Program that support television and film production.

The Canadian Television Fund (CTF) provides $200 million (through the License Fee Program and the Equity Investment Program, which is made up of $50 million annually from the Telefilm Canada budget, $50 million annually from the cable television industry, and a $100 million annual contribution from the Department of Canadian Heritage) to encourage a strong Canadian presence in the Canadian broadcasting system by supporting the production and distribution of Canadian drama, children's programming, and documentary, performing arts and variety shows.

The fund is available only to Canadian-owned and controlled production companies for productions that meet Canadian content regulations and will be broadcast in prime time by a Canadian television licensee within two years of completion. In addition, the CBC can access up to 50% of the fund in partnership with independent Canadian producers.

In 1997, the Canadian Radio-television and Telecommunications Commission (CRTC) began requiring broadcast distribution companies -- including new direct-to-home services -- to contribute up to 5% of their gross annual revenues to the Canadian Television Fund (CTF).

The Canadian Film or Video Production Tax Credit program is designed to encourage a more stable financing environment and longer-term corporate development for production companies. Provincial governments also offer complimentary tax credit programs.

The Cultural Industries Development Fund provides loans for the major cultural industries. In 1997-98, it disbursed $9 million in loans.

In 1997, the government announced a new $500,000 fund designed to help artists use new media. The fund is administered by the Canada Council.

In June 1998, the government announced a five-year, $30 million Multimedia Fund, designed to assist in the development, production, distribution and marketing of Canadian multimedia products. The Multimedia Fund, administered by Telefilm Canada, provides interest-free loans that will help producers overcome hurdles, such as high production costs and problems obtaining financing.

Through the Publications Assistance Program, the government also supports the Canadian periodical industry by offering postal subsidies for Canadian periodicals printed and distributed in Canada. Periodicals originating in other countries but distributed in Canada are not eligible for these subsidies. This postal subsidy benefits over 1,500 Canadian periodicals.

Financial incentives in the television and film industries have gradually evolved from a system of grants, to equity investments made by the Canadian Television Fund and now to the more objective tax credits and license fee top-ups. These changes are occurring in the context of Canadian film/tv producers being able to attract an increasing amount of foreign investments and pre-sale commitments to support their projects.

The Impact of the Canadian Television Fund (CTF)

In its first two years of operation, the CTF assisted in the creation of 2,221 hours of new Canadian programming, all of which is to be shown on Canadian television screens during prime time (generally, 7-11 p.m.). Representing over 700 projects, these high-quality television programs had budgets which totalled more than $1.2 billion, and which provided employment for Canadians in all parts of the country.

What is the CRTC?

The Canadian Radio-television and Telecommunications Commission (CRTC) has regulatory responsibility for both broadcasting and telecommunications. In broadcasting, its role is to balance the interests of consumers, the creative community and distribution industries in implementing the public policy objectives established by Parliament.

The CRTC establishes the criteria that broadcasters must meet to be licensed and operate in Canada. The CRTC reviews all applications for new services or changes to existing services, and makes its decisions based on the Broadcasting Policy for Canada as set out in the Broadcasting Act. It has been extremely effective in promoting Canadian culture, and is likely to continue to play an important role in the future.

2. Canadian content requirements and other regulatory support mechanisms

Because we share common languages with a number of other countries, Canada is a ready market for their cultural goods. While the government does not want to limit access to foreign cultural goods, it wants to ensure that Canadians can experience our own cultural products and that there is a place for them in our market.

To create a place for Canadian cultural products in the broadcasting industry, the government uses a variety of regulatory measures. For example, the CRTC issues licenses to create space for Canadian cultural industries, and monitors performance to regulate and supervise the country's broadcasting system.

Canadian Content

To ensure that the Canadian broadcasting system will carry Canadian cultural products, the CRTC sets requirements for Canadian content. These rules apply to the radio and television programming services that broadcast programs and to the distribution systems, (cable television, direct-to-home (DTH) satellite, and MDS systems) that deliver broadcast services to the home.

For example:

Under the CRTC's regulations, radio and television stations are required to devote a specific amount of their air time to Canadian content. In some cases, the CRTC also requires certain minimum expenditures and/or numbers of hours per year devoted to the broadcast of certain categories of Canadian-produced programming, such as drama, music, variety and children's programming.

Beginning in 1989, conventional private broadcasters were required to either show a specified number of hours of Canadian drama, music or variety programming each week or spend a prescribed amount of their total gross broadcasting revenues on Canadian programming.

Pay and specialty television services are also licensed by the CRTC, and are required to provide between 16% and 100% Canadian content, depending on the service.

What is Canadian Content?

Canadian content is defined differently for sound recordings played on radio and programs broadcast on television.

For radio sound recordings: Canadian content is based on the MAPL system - or the nationality of the music composer, the artist, the place of production and the author of the lyrics. When at least two of the four are Canadian, then the sound recording meets the requirements for Canadian content.

For television programs and feature films: Canadian content is based on a point system. For example, programs can earn 2 points for using a Canadian director and a point for each leading Canadian actor. Programs must be produced by a Canadian and have at least six points to be considered Canadian. To qualify for financial assistance from the Canadian Television Fund, a production must attain a maximum of 10 points.

Canadian content rules can be flexible. To encourage the production of Canadian programming and help the cultural industries get access to capital and export markets, the Canadian government has signed co-production agreements with more than 30 countries. Under these agreements, productions with as little as 20% Canadian participation can meet the requirements for Canadian content.

Pay-per-view and video-on-demand services must offer a 1:20 ratio of Canadian to non-Canadian films and a 1:7 ratio of Canadian to non-Canadian events, and distribute no fewer than 12 Canadian feature films each year.

The Broadcasting Distribution Regulations came into force on January 1, 1998. The new regulations, which replaced earlier regulations applicable only to cable television, apply to all distributors of broadcasting programming services in Canada, including cable, Multipoint Distribution System (MDS) and DTH satellite distributors. They are designed to foster fair competition between distributors and new distribution technologies in the broadcast distribution market to the benefit of consumers, while strengthening the presence of high-quality Canadian programming in our broadcasting system.

Cable systems must include in their basic service: local CBC/SRC stations or their affiliates, local commercial Canadian services and the provincial educational service. In addition, basic service usually includes a community channel, the Canadian Parliamentary channel (CPAC), eligible distant Canadian television (and radio) stations, and may include up to five U.S. services (four commercial and one non-commercial).

Broadcast media provide an extremely effective way to reach Canadian audiences and are a prime distribution system for cultural products. Virtually every Canadian home has a radio, which is listened to on average about 20 hours a week. About 99.2% of Canadian homes have at least one television, and Canadians watch an average of 22.7 hours of television a week. According to the Juneau Report (Making Our Voices Heard - Canadian Broadcasting and Film for the 21st Century, 1996), Canadians spend more time watching television than "we spend on reading, going to movies, theatre, ballet and the symphony, attending church, playing sports and participating in PTA meetings combined".

Regulating new distribution systems

New technologies are increasing the number of channels and the way that signals are carried and transmitted. Canada's Convergence Policy (1996) acknowledges that having new types of distribution networks (i.e. DTH and Direct Broadcast Satellite) will lead to more competition among the broadcast industry and the telecommunications industry in their own markets. The new distribution networks will give consumers more choice while encouraging competition. For example, telecommunications firms can now apply for licenses to provide broadcast services, and broadcast firms can develop telecommunications services.

While new technologies allow telecommunications and broadcasting companies to offer similar services, the distinction between those companies' services will remain, and will continue to be guided by distinct regulatory systems. For example, when a telecommunications company provides broadcasting services, those services will fall under the Broadcasting Act and its regulations; when a cable company provides telecommuni-cations services, they will fall under the Telecommunications Act and its regulations.

Canadian Content Requirements

Broadcaster

Canadian Content

Radio

generally 30% of popular music selections*35% in 1999

CBC/SRC television

60% overall yearly60% from 6:00 p.m. to midnight

Private television broadcasters

60% overall yearly50% from 6:00 p.m. to midnight

Pay and specialty television services

16% to 100%**

Pay-Per-View services

1:20 Can. : non-Can. films1:7 Can. : non-Can. events

* For French radio, the vocal music requirement is 65% French language content. New regulations will also require a minimum 55% French language vocal music content Monday through Friday, between 6:00 a.m. to 6:00 p.m. ** The requirement varies, depending on the service. Most are required to offer at least 30% Canadian content.

Canada's Convergence Policy (1996) reaffirms that all broadcasting distribution systems must provide Canadian programming, contribute financially to producing Canadian content and be subject to the same rules and obligations.

In view of the rapid changes in broadcast technologies, the CRTC is now regulating new distribution services, such as DTH services, which use medium-powered fixed satellites or high powered satellites (Direct Broadcast Satellites) to transmit a number of television stations and services directly to consumers who have satellite dishes and signal decoders.

For example, DTH service providers, like cable television systems and other BDUs, must ensure that a majority of the channels received by their subscribers are Canadian programming services.

The services are also encouraged to offer the parliamentary channel and provincial educational service. The CRTC has also licensed competing pay-per-view (PPV) and video-on-demand (VOD) programming undertakings under the Broadcasting Act, whether they are provided through cable, DTH or other distribution systems.

Simultaneous substitution rules

The advertising rates that television stations charge and the amount of advertising revenues they earn depend on the size of their audiences. When local or regional broadcasters buy programs from American and Canadian producers and networks, they pay substantial sums of money to have exclusive distribution rights in their home markets. However, if other, more distant stations are showing the same program at the same time, the local audience will be split among several stations and the local station will lose revenue.

Simultaneous substitution rules, which are used in both Canada and the United States, are designed to protect the local or regional stations exclusive distribution right. Signal substitution occurs when a cable company inserts the signal of a local or regional Canadian TV station on the channel of a more distant station, showing the same program at the same time. For substitution to take place, the local or regional television station has to make a request to the cable company in advance. In addition, the programming on both channels at the time of substitution must be 95% identical. While substitution can apply to two Canadian stations, it more often involves the substitution of a Canadian signal for an American one.

With substitution, the local and regional stations maintain their home audiences which, in turn, allows them to earn appropriate advertising revenue and maintain the integrity of the local license.

3. Tax measures

To promote Canada's cultural industries, the government uses tax and other measures to influence the domestic cultural market. These measures are specifically designed to help Canadian companies maintain the advertising revenues they need to survive and to amass the budgets required to develop Canadian programs.

With the advent of cable and U.S. television signals entering Canada, advertising revenue began to shift from Canadian stations to stations across the border. To help protect this source of income, the Canadian government developed legislation that would stem the flow of advertising revenue to U.S. border stations. For example, the Income Tax Act (Bill C-58, s.19.1) made the cost of advertising with a Canadian broadcaster fully tax deductible, but limited the tax deduction for advertising placed with U.S. border stations. Similar legislation also applies to advertising in magazines and newspapers.

In 1995, the government introduced an excise tax on advertising in split-run magazines to capture foreign publications that were being transmitted into Canada via satellite, thereby avoiding the existing customs tariff. In 1997, the United States successfully challenged the 80% tax on the cost of advertising in split-run periodicals at the World Trade Organization, and Canada decided to repeal the excise tax. Footnote 2

What is a split-run magazine?

A split-run magazine is a Canadian edition of a magazine published originally in another country that has basically the same content as the original but replaces more than 5% of its original advertisements with ads targeted to Canadians. Producers of split-run publications cover the cost of production through sales and advertising in their own market. They compete for Canadian advertising dollars with Canadian-produced publications which need the advertising income to cover their production costs.

4. Foreign investment and ownership

Like other governments, Canada imposes rules on foreign ownership in selected important sectors as part of its cultural policy. It does this primarily through provisions in the Investment Canada Act.

This policy reflects the fact that Canadian-owned cultural industries are more likely to create, produce, distribute and exhibit Canadian content. For example, in 1994-95, independent Canadian sound recording companies released 90% of all Canadian content music -- despite the fact that they have only 16% of the Canadian sound recording market. In book publishing, Canadian-controlled companies publish about 87% of the titles published in Canada. Between 1990 and 1994, foreign-controlled film distribution companies contributed less than 3% of the total rights and royalties paid to Canadian film productions.

Examples of foreign investment measures are as follows:

Under the Investment Canada Act 1985, any foreign investment in a cultural industry is reviewed.

Canada's policy states, inter alia, that foreign-owned companies may not sell books as a primary business activity, and that new businesses must be Canadian-controlled, and that the foreign acquisition of existing Canadian-controlled business is allowed only in extraordinary circumstances.

In 1988, the government developed foreign investment guidelines designed to generate funds for the Canadian film industry and to strengthen the Canadian film distribution sector. The guidelines prohibit foreign takeovers of Canadian-controlled distribution firms and allow foreign takeovers of foreign-owned firms only when investors agree to invest a portion of their Canadian earnings in developing Canadian culture. Under the guidelines, foreign investors who start new businesses are only allowed to distribute their "proprietary products" (i.e. films for which the distributor holds world rights or is a major investor). This restriction applies only to new businesses, established in Canada since the guidelines were introduced in 1988, not to distribution firms then operating in Canada.

At the same time, foreign investors can provide much needed capital and important strategic alliances for the cultural industries. In its policies, the government balances the need to encourage investment with the goal of ensuring that Canadian cultural industries stay in Canadian hands.

For example, until 1996, no firm applying to the CRTC for a broadcasting license to operate in Canada could have more than 20% foreign investment. In 1996, the federal government instructed the CRTC to increase the maximum allowed for foreign investments. Now up to 46.7% of a broadcasting company (33.3% of the holding company and 20% at the licensee level ) and 100% of its non-voting shares can be foreign owned, provided that the de facto control is not exercised by non-Canadians. The new provision respects the legal requirement for Canada to "own and control" its broadcasting system, which enables the broadcasting industry to obtain more foreign capital in order to keep pace with technological advances and more competition. The 1996 changes also made foreign investment rules for broadcasting industry closer to those that apply to the telecommunications industry.

Film Distribution Rights

Film distribution rights are a key issue in the film industry. Film distributors based in the U.S.A. have traditionally been able to purchase the rights to distribute films for both the United States and Canada. This practice deprives Canadian distribution firms of the opportunity to distribute major films in the Canadian market, and of the revenue that those distribution rights would generate, which could then be invested in developing new Canadian films. In 1987, Canada considered establishing an import licensing system that would limit foreign firms to distributing their own films or films for which they had the world rights. However foreign firms now operating in Canada objected, and the legislation did not proceed. Canada's film policy is now under review.

5. Measures to protect intellectual property

A film, sound recording or book is more than the tape, CD or paper on which it is recorded. It is the content or intellectual property that goes into creating scripts, music, lyrics, books or performances.

Copyright Protection

Canada -- like other countries -- has long offered copyright protection for authors, composers and lyricists. Copyright is designed to ensure that artists receive appropriate rights or remuneration for creativity, not inconsistent with international standards.

The recent amendments to the Copyright Act (which received Royal Assent on April 25, 1997) include provisions for neighbouring rights, which extends copyright protection in the sound recording industry from authors (composers and lyricists) and producers to performers. Furthermore, when sound recordings are broadcast on radio or played in public (i.e. at bars, restaurants, receptions and sports events), the author (composer and lyricist), producer and performer will now all receive royalties.

With the Copyright Act, Canada also took further steps regarding the parallel importation of books. These are books that are published legitimately in their own country, but imported into Canada without the consent of Canadian publishers or distributors who have exclusive rights to distribute the titles in Canada. In the past, copyright holders had the right to prevent parallel importation. Canada has changed its legislation to provide equivalent measures to distributors.

Private Copying Levy

Before the latest amendments to the Copyright Act (1997), authors (composers and lyricists), as well as producers of sound recordings had the exclusive right to authorize the reproduction of their creations, but they were unable to enforce it. Consumers have been making unauthorized copies of sound recordings for close to three decades now. Each year, the Canadian sound recording industry loses substantial income from people copying sound recordings and videotapes.

Instead of trying to prevent private copying, which is extremely difficult, Canada has introduced a private copying levy on blank audio recording media. The scheme covers both analog and digital recording media and CD-ROMs.

Revenue from this private copying scheme will be used to compensate Canadian authors (composers and lyricists), music publishers, performers and producers for the unauthorized copying of sound recordings. Under the terms of the Copyright Act, Canada will also compensate foreign authors of musical works whose copyright subsists in Canada. However, the Minister of Industry has the discretion to offer private copying benefits to foreign producers and performers on a reciprocal basis (i.e. offer private copying benefits to creators whose countries reciprocate and offer the same benefits to Canadian creators).

The Impact of Canada's Cultural Policies

Canada's cultural policies and tools have played an important role in developing a strong cultural infrastructure and achieving our cultural goals. We continue to own and control our cultural industries, and we produce quantities of cultural products or Canadian content that speak to all of us and reinforce our national identity. Without these cultural measures, it would be harder for Canadian artists and cultural organizations to produce and display their creations.

At the same time, Canada is one of the world's most open cultural markets. We rank among the world's largest per-capita consumers of cultural goods, both domestic and foreign. We have been able to make a place for Canadian products in our market without limiting access to cultural products from around the world.

Of all our cultural policy tools, the regulation of Canadian content has had the most significant impact. The regulatory framework for the broadcasting industry has proven to be extremely effective in supporting Canadian cultural industries while respecting foreign interests. The industry attributes the increase in viewing of Canadian English-speaking television programs and the strength of Canada's sound recording industry to the Canadian content rules.

How Do Canada's Cultural Policies Compare with Those of Other Countries?

Canada is not alone in its efforts to promote culture and cultural industries.

Providing Financial Assistance

Like Canada, many countries provide direct support for their cultural industries. For example:

The European Union's MEDIA II program provides grants and loans to "promote the development of [film] production projects...aimed at the European market".

The United Kingdom provides subsidies for a wide range of artistic activities through the Art Councils, which are funded by lotteries, while the British Film Institute provides direct grants for film production and exhibition.

France's Centre National de la Cinématographie uses special cinema taxes to support film production. Any producer of fiction, animation, cultural shows or documentaries whose programs have been broadcast by French Television automatically receives a grant from the country's Film and Television Industry Support Fund.

Germany's Filmforderungsanstalt, the largest of the federal film funds, supports the production of feature films and shorts, script development, exhibition, training and research.

In Italy, the Sezione di Credito Cinematografico e Teatrale (SPA) is a credit institution that distributes loans for audio-visual production and advance payments on the revenues from the sale of national productions abroad.

The Swedish Film Institute uses a tax on cinema tickets and video rentals as well as state funds to make film production grants.

The United States directly supports everything from literature to drama through the National Endowment for the Arts.

Protecting Intellectual Property

Since the late 1880's, countries have worked together, through a number of international agreements, to protect intellectual property rights. However, piracy of sound recordings, books, videotapes, software and even broadcast signals continues to be a global problem. The most serious and costly threat to intellectual property comes from countries which have not yet established intellectual property laws or do not have the resources or the will to enforce their laws.

Copyright and Neighbouring Rights

Copyright and neighbouring rights protection are significant incentives for creators. They also help ensure the growth and sustainability of major information and copyright based industries competing in worldwide markets, and provide effective ways for countries to harmonize their policies in a global market marked by evolving economic, social, cultural and technological development.

With other countries, Canada is a party to a number of international agreements. For example:

131 countries are bound by the Berne Convention on the Protection of Literary and Artistic Works (1971).

132 countries are bound by the World Trade Organization agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

57 are bound by the Rome Convention on the Protection of Performers, Producers of Phonograms, and Broadcasting Organizations (1961).

Despite the large number of countries that are party to these agreements, practices worldwide still vary significantly. For example, some countries offer longer terms of copyright and more generous neighbouring rights protection than others. Some countries protect performers and producers of both audio and audio-visual works, while others protect only sound recordings. Some countries ensure protection for many uses, others exclude certain uses. Finally, some countries ensure generous royalty levels, while others only token amounts.

Private Copying

Several countries provide for a private copying scheme, offering some compensation to authors, performers and producers of audio and/or audio-visual material. However, the protection and remuneration levels vary significantly between countries.

Some countries that provide a private copying scheme do not necessarily cover both audio and audio-visual private copying. Some provide levies that apply to both hardware (i.e. reproduction devices) and recording media, while others charge the extra fee only on recording media. Most countries' schemes apply to private copying in analog media only; while a very small number limit their schemes to digital reproduction. Many countries do not provide any private copying schemes, but enact a private use exception.

Different interpretations of countries' obligations under the Berne and Rome agreements lead to considerable variation in whether countries offer private copying benefits beyond their own borders. Some countries' tax-based schemes benefit their own citizens only, while others use their revenues to compensate all creators. Most grant private copying benefits only on a reciprocal basis.

Regulating Content

Content requirements are a common cultural policy tool. For example, France, Italy, Spain, Mexico and Australia have all established domestic content requirements that affect television, radio, film and pay-TV. In 1989, the European Union (EU) passed legislation which states that a "majority" of broadcasting time devoted to fiction programming must be of EU origin. Countries within the EU have gone further and set specific requirements which vary depending on the country and the media. For example, France has ruled that 60% of its programming must be European and 40% French, and that all private and public radio stations must devote 40% of prime air time to French songs.

A number of countries have also set content requirements or screen quotas for the film industry:

Cinemas in France must reserve five weeks per quarter for French feature films or four weeks per quarter for theatres that include a French short during six weeks of the previous quarter.

Theatres in Spain must show one day of new EU films for every three days of non-EU films they display.

Mexico requires movie theatres to devote 10% of their screen time to domestic films (down from 30% in 1993).

Using Other Measures

Some countries use other measures to control access to their broadcast and film markets. For example:

The Italian government offers theatres that show Italian films a rebate on their box office taxes.

Spain uses a system of dubbing licenses: film distributors can only receive a dubbing license for foreign films when they contract to distribute a certain number of Spanish films.

Mexico prohibits the dubbing of foreign films, except educational films and those authorized for children.

The United States uses the Motion Picture Association of America (MPAA) movie rating system to limit film distribution. Independent and foreign film makers believe the system is overly harsh in its ratings for their films.

A Comparison of Domestic Television Broadcast Content Requirements

Country

Requirement

Australia

55%

Canada

16 to 100% depending on the nature of the service

France

60% European40% French

Restricting Foreign Investment and Ownership

Most countries have some restrictions on foreign ownership. However, in terms of restricting investment in cultural industries, countries are more likely to restrict foreign ownership in their broadcast industries than in their magazine, publishing or film distribution industries. (Only a few countries prohibit foreign investment in these cultural sectors.)

National policies on investment in the broadcast industry vary significantly. Some countries ban all foreign investment in the news media, broadcast and television sectors but most countries set a fixed limit on foreign investment, particularly in the television industry.

The investment policies of other countries are often not transparent, so they are difficult to compare with Canada's policies. Some countries adopt policies that match those of their trading partners (e.g., they extend to a trading partner the same opportunity or level of foreign investment as that partner offers to them). However, Canada appears to be the only country to approve foreign investments in the cultural industries based on commitments from foreign firms to invest a portion of their earnings in developing Canadian content.

Although most countries put some restrictions on foreign ownership, like Canada, they have usually avoided expropriation or any other measures that could cause foreign investors to flee. Most countries strive to provide stable, predictable environments for investors, and comply with the international law of investments.

The issue and impact of foreign investment and ownership is likely to become more complex in the future because the definition of "broadcasting" is not clear or simple. Some countries differentiate between broadcasting and satellite to cable services, restricting foreign ownership in over the air broadcasting, but allowing foreign ownership of DTH services.

When Canada is the foreign investor ...

Early in 1997, the Australian Broadcasting Authority and Australia's Treasurer ordered CanWest Global to partially divest its shares in Australia's Ten network by a certain date in order to comply with ownership restrictions for broadcast undertakings. CanWest Global subsequently sold a portion of its shares.

Comparison of Foreign Investment Restrictions on the Broadcasting Industry

Country

Maximum foreign investment/ownership allowed

Australia

15%

Canada

33.3% of holding company20% at licensing level

United Kingdom

ownership restricted to EU member states

United States

20% of conventional broadcasting

Culture in a Fast Changing World

Canada's cultural industries are a vital and indispensable part of our national identity and our economy. To fulfil their crucial role, the cultural industries must -- like any industry -- adapt to changes in the marketplace.

New technologies combined with more liberal trade policies are creating pressure on the cultural policies that have served to create a strong and diverse Canadian culture. The challenge for Canada is to achieve a balance between measures which aim to foster cultural expression and our international trade obligations. The changes in our cultural marketplace highlight the urgent need for government and the cultural industries to review our cultural policies and refine our cultural strategies. To keep cultural goods and services from being treated like commodities -- to maintain and enhance our cultural diversity -- we must be aware of the changes that are occurring around us, and be prepared to respond.

New Technologies are Creating More Choice and Competition in the Canadian Market

New technologies are revolutionizing the way cultural products are created, produced, delivered and distributed. Until recently, Canadian consumers had fewer choices about how they received programs and information. They could buy books, magazines and newspapers. They could receive local television and radio broadcast signals free or they could pay extra to have a cable wire run to their homes that would bring them other stations.

With the development of wireless technology and the growth of the Internet, consumers now have more choices. They can purchase cable services that have expanded channel capacity. They can buy a small satellite dish and a decoder that will allow them to pick up signals directly from satellites. They can use the computer to access the Internet to read magazine articles, listen to music or watch some audiovisual material.

The new technologies mean that cable companies that once enjoyed a monopoly in their own markets are now facing more competition. Canadian television broadcasters -- the stations most likely to carry Canadian content -- will now have to compete with a larger choice of broadcast services for their share of the market.

New Technologies are Making the Market for Cultural Products Harder to Regulate

Past efforts to create a place for Canadian cultural products in the broadcast market succeeded because the government could control and regulate the relatively scarce number of bandwidths. Television broadcasters, cable companies, pay and specialty tv services all had to be licensed to reach Canadian homes.

With the new technologies, the number of channels will increase significantly, making the market more complex and fragmented, and more difficult to regulate. These new high-tech distribution networks may offer foreign products more highways into the Canadian market, and government may find it more challenging to make a place for Canadian content on these new networks. For example, Sports Illustrated found its way around the Canadian tariff code that prohibited companies from physically importing split-run magazines into the country by transmitting the publication to printers in Canada via satellite.

However, Canada is aware of the challenge and is developing ways to continue to pursue its cultural policy objectives. The CRTC has already moved to regulate DTH service, and both the CRTC and the Copyright Board of Canada are in the midst of proceedings that will examine the role of the Internet and the extent to which program material distributed by the Internet can or should be regulated or supervised. Canada has also taken a leadership role in ongoing international efforts to deal with these issues, hosting the OECD Conference on Electronic Commerce, held in October 1998.

The new media environment also raises challenges to copyright and other measures designed to ensure appropriate compensation for artists and right holders. Canada, like other countries, will have to develop a means to safeguard intellectual property and encourage cultural industries, which is consistent with international intellectual property treaties. This is a crucial step in promoting our national identity and cultural diversity.

Over 38% of households in Canada have used computer communications and almost 30% use the computer regularly to communicate. Of those that use computer communications regularly, over 84% use it to search for information on the Internet. Based on these trends, the Internet is becoming an important communications medium for Canadians.

Trade and Culture

Canada depends on an open, transparent and predictable trading system to maintain a high standard of living. A nation rich in skills and knowledge, we recognize and have reaped the economic rewards of freer world markets. We support the worldwide trends toward more trade and greater liberalization.

International Trade and Domestic Policies

Canada is a member of the World Trade Organization (WTO) as well as various regional agreements, such as the North American Free Trade Agreement (NAFTA), and is an active participant in international trade negotiations. To prosper, we must continue to participate.

Since 1948, when 23 countries first signed the General agreement on Tariffs and Trade (GATT), the worldwide trade in goods has gradually been liberalized. Markets are more open. Trade barriers have fallen.

Under international trade agreements, countries generally agree to grant their trading partners "most favoured nation" (MFN) status and treat all of them equally. In addition, once trading partners' goods or services have entered their market, members of the agreement must give those goods or services "national treatment" (i.e., treat them the same as their own national goods and services), to the extent that the affected products are covered by the agreement in question.

Countries all over the world have benefited economically from this liberal approach to trade. And the trend to a freer trading system -- one that is predictable and doesn't discriminate -- is growing. During the Uruguay Round of GATT negotiations (1986 to 1994), 123 countries were at the table.

In 1995, the countries involved in those negotiations agreed to establish the World Trade Organization (WTO) to integrate all the new agreements which had been negotiated and signed by most of the world's trading nations. Any disagreements may be resolved by member governments through a special dispute settlement process.

Recognizing the growing market in services, knowledge and information, the agreements moved beyond trade in goods to cover worldwide trade in services and certain aspects of intellectual property.

Cultural Exemptions and Other Trade Measures

International trade agreements vary in how they treat cultural products or respond to many countries' view that "culture is more than a commodity."

For example, in the General Agreement on Tariffs and Trade (GATT) some special arrangements are made for aspects of culture: one allows countries to limit the screen time given to foreign films, another provides a general exception for measures designed to protect "national treasures of artistic, historic or archaeological value". Any other cultural products that are considered "goods" would be subject to the GATT rules (e.g., MFN, national treatment).

With the creation of the WTO, the countries that are members of the GATT have negotiated additional agreements, such as the Agreement on Subsidies and Countervailing Measures and the Agreement on Trade-related Investments Measures (TRIMs), which provide further elaboration on rules governing trade in goods.

For example, the Agreement on Subsidies and Countervailing Measures establishes three categories of subsidies for goods: prohibited, actionable and non-actionable. Subsidies that are provided based on export performance or on a company using domestic (rather than imported) goods are prohibited, while subsidies provided to assist in research and development or to help disadvantaged regions are excluded from the scope of the agreement. TRIMs prohibits countries from establishing certain performance requirements as a condition for foreign investment.

In the General Agreement on Trade in Services (GATS) negotiated during the Uruguay Round of multinational trade talks (1986 to 1994), members did not agree to exempt culture from the agreement but they did allow countries to opt out of MFN obligations and to opt in to national treatment obligations. As a result, Canada took an MFN exemption for its film and television co-productions and did not include any commitments for national treatment in the cultural sector. In other words, Canada effectively withheld its cultural policies from the GATS disciplines and maintained its right to promote Canadian cultural services and suppliers. This is consistent with our cultural policy objectives and our view that cultural products are not commodities.

In regional and bilateral free trade agreements, such as the North American Free Trade Agreement (NAFTA), the Canada-Israel Free Trade Agreement, and the Canada-Chile Free Trade Agreement, Canada has negotiated a "cultural exemption". With that provision, Canada has the right to exempt the cultural industries from most terms of the agreement. For example, under NAFTA, Canada can continue to support its cultural industries as long as the measures it uses are otherwise consistent with the pre-existing Canada/USA Free Trade Agreement.

In future negotiations, there will be more pressure on all countries, including Canada, to liberalize their policies and practices. Such pressure has been evident, for example, in the negotiations on the Multilateral Agreement on Investments (MAI), which focused on establishing principles to govern the treatment of foreign investments in certain agreed-upon sectors.

Right now, the international "disciplines" governing trade in goods are more extensive than those covering trade in services. However, as we have seen in recent negotiations, disciplines are becoming more extensive for investment and trade in services and intellectual property rights. Canada must be prepared to respond to efforts to treat cultural products like other goods and services.

Principles of the Multilateral Trading System

The multilateral trading system is based on the following concepts and principles:

Most Favoured Nation (MFN) status. Countries that are partners to trade agreements agree to grant all their trading partners "most favoured nation" (MFN) status and treat all of them equally.

National Treatment. When a trading partner's goods or services enter a country's market, the receiving country agrees to give them "national treatment" or treat them the same as its own national goods and services.

Transparency/Predictability. Countries agree to make all their trade practices "transparent" or "visible" to their trading partners, and avoid unfair or less visible practices, such as subsidizing industries or dumping products. Countries also agree to negotiate binding agreements that create a predictable trade environment, so foreign companies and investors don't have to worry about countries suddenly throwing up arbitrary barriers to trade.

These principles for international trade agreements are the basis for the GATT, GATS and the FTAs.

New Industries and New Products Challenge Trade Definitions

Sectors that were once quite distinct and were shaped by different policies -- broadcasting, cable, satellite and telecommunications -- are now merging and converging in the race to develop the new information highway and the distribution systems of the future. They are creating new industries and new products, making it more difficult to draw the line between a cultural industry and the telecommunications or computer industry.

Convergence is making it easier and less expensive for magazine and book publishers to make their products. It is also helping artists create whole new cultural products: multimedia products -- such as CD-ROMs, video games, virtual reality, digital animation and interactive education and training programs. It is also changing traditional and cultural products. For example, an online magazine will be less expensive to produce, and will be able to integrate sound and film, making "reading" a magazine a very different experience.

Multimedia products are just steps on the way to truly interactive products that will soon be part of our everyday lives. These new products, which will draw on content produced by the film, television, sound recording, book, magazine and cultural arts industries, will have applications far beyond what we usually consider the world of culture and entertainment. They will be found in business and industry, blurring the traditional definition of a cultural product.

Convergence offers our cultural industries some advantages by creating new markets for Canada's communications industries and our cultural products. The Canadian broadcasting industry, already a world leader in cable distribution, digital television and satellite broadcasting is in a strong position to sell that knowledge and expertise to the rest of the world. Canadians also own the Internet delivery networks within Canada and many Internet service providers. In addition, the growing number of new distribution networks will be looking for "content" to distribute. They are creating new markets for Canadian films, television programs and sound recordings at home and abroad.

However, with the emergence of new cultural industries such as multimedia, the related trade issues may become more complex. New links between cultural content, telecommunications, and business and industry applications are making it more difficult to define cultural products for purposes of trade agreements. Convergence is raising questions about the scope of goods and services that can be considered culturally significant.

Trade Challenges to our Cultural Policies

Over the past few years, Canada has faced a number of challenges to its cultural policies:

When Sports Illustrated began transmitting its publication electronically into Canada, the Canadian government responded by creating an 80% excise tax on the value of the advertising in split-run magazines. The United States then began dispute settlement proceedings under the World Trade Organization (WTO), challenging the excise tax, the original tariff code, Canada Post's commercial postal rates and the postal subsidy. The Panel decided that all four measures were inconsistent with the GATT. As a result, Canada committed to implementing the decision by repealing the excise tax, removing the tariff code and changing its postal program.

In 1994, the CRTC licensed a series of new Canadian pay and specialty services, including New Country Network (NCN) and removed a competitive American specialty channel, Country Music Television (CMT) from the list of eligible services. The United States Trade Representative (USTR) launched a proceeding on the decision under American legislation and CMT challenged this decision in the courts. Both actions were halted in 1996 when NCN and CMT merged. Although the CRTC actions were within its authority, the Commission later stated in 1997 that it would not be disposed to remove a non-Canadian service from the list of eligible services even if it licenses, in the future, a Canadian service in a competitive format.

When Canada approved PolyGram N.V.'s (a U.K.-based entertainment multinational owned 75% by Philips Electronics of the Netherlands) application to establish a new film production and distribution company in Canada, PolyGram was required to limit its distribution activity to only proprietary films. The company also agreed to spend a certain portion of its Canadian revenues on cultural production in Canada. Concerned that these terms were not consistent with international trade obligations, the EU (European Union) initiated consultations through the dispute settlement process. However, the EU has not pursued the matter pending the outcome of the sale of PolyGram to Seagram, a Canadian-owned company.

As countries move to develop a freer trading world, disciplines may become stricter and the number of challenges to domestic cultural policies could increase. These challenges highlight a need to refine our cultural policies so we can continue to foster an environment where cultural expression and diversity can thrive.

Economic Interdependence is Challenging National Borders

Cultural industries, like other sectors, are seeing rapid growth in multinational corporations. As companies try to position themselves to prosper from the information economy, mergers and consortiums -- firms from different countries working together to bring a product to a world market -- are becoming common. In many cases, artists and producers are thinking less about their domestic market and more about global markets.

Some Canadian firms may see industry consolidation as a threat. Others may see it as an opportunity to become part of a multinational organization that has greater access to foreign markets.

In trade terms, the growing economic interdependence is challenging national borders and changing attitudes towards policies designed to nurture national interests. The trend to economic interdependence is not limited to industry. With recent trade agreements, such as NAFTA and the treaties that helped create the European Union, the countries' economic interests are becoming more closely intertwined. Trade barriers are being pulled down, and national policies are being challenged. This trend will have an impact on both cultural and trade policies in the years ahead.

In the midst of this economic integration, countries are striving to promote their cultural identity. Canada's cultural policies have served us well in the past. The growing pressure from new technologies and globalization highlight the urgent need for strong cultural policies in the future. Without strong cultural policies, we will become simply producers and consumers of tradeable goods and services. We will no longer have our own stories.

The challenge is to develop, with other nations, open and transparent policies that acknowledge that cultural products are different from other goods and services, and allow us to maintain our national identity and cultural diversity in a rapidly changing world.

They have also helped promote a Canadian identity and a sense of pride in who we are as a people and a nation. Over time, Canada's cultural policies have gradually evolved, adapting to changes in both the domestic market and the global marketplace.

Canada has been a leader in championing cultural products: the "brain and soul foods" that help people and nations communicate with others and share differing views. Internationally, Canada has been a strong, persuasive voice in the "culture is more than a commodity" debate.

Technological developments have had and will continue to have a profound impact on culture. The very notion of "cultural industries" derives primarily from the influence of technology, i.e. printed books/magazines, film, sound recordings, radio, televisions and multimedia. Advances in recent years have transformed the way Canadians access cultural product, and there are two broad reactions to these developments. Some people believe these changes have made Canada's cultural policies obsolete, and that it will, in future, be almost impossible to regulate the inflow and transmission of electronic content. Others, however, have said technological change has made Canada's cultural policies even more essential, and have emphasized that technological advances have in the past been accommodated in Canadian cultural policies and measures, and can be in the future.

There can be a long lag time between a technical possibility and the ultimate mass diffusion of a new technology. If we act quickly, cultural and trade policies can be adapted and revised to retain their effectiveness to achieve cultural objectives. Initiatives may also be taken to counter some of the detrimental effects generated by the introduction of these technologies, as was the case with the introduction of Canadian DTH distribution companies. The creators, producers and distributors of cultural products have a common interest in finding mechanisms to ensure that they will continue to be able to exercise the rights they hold, and to be paid accordingly.

It should also be remembered that it is very rare for cultural products and services to make a sustainable breakthrough on foreign markets without first having conquered their own domestic market. In the audio-visual sector, for example, the current success of certain Canadian production companies on the international stage was made possible by the fact that these same companies were first able to take advantage of the domestic market dynamic to develop concept, production and marketing expertise. We must not compromise access to our own domestic market -- without which the vast majority of Canadian cultural enterprises would not be able to prosper and develop their export potential -- in order to promote access to international markets. Finally, it should be remembered that the primary goal of the public cultural policy is to enable Canadians, on their own territory, to have access to a diversified range of cultural products reflecting their own values, culture and identity.

It is time to determine how Canada can find the balance between its cultural policy objectives and its international trade obligations. As a nation, we believe in the benefits of open markets, but we are concerned about the effect that globalization of trade, combined with rapid technological change, may have on our identity as a nation, our culture and our sense of community. These are putting pressure on Canada's cultural policies and raising questions. How can Canada continue to nurture its culture and identity, and still be an active participant in the free trading world? How should Canada use its cultural toolbox? Do we need new policies and approaches?

Over the next few years, Canada will be involved in major trade and investment negotiations. As part of its built-in agenda, the WTO has already made a commitment to negotiate agreements on trade in services and agriculture. Because many of our cultural industries involve services, the government will have to develop a negotiating strategy. It will also have to assess the potential impact of any new trade obligations on its cultural policies, as well as the impact of domestic cultural policies on its ability to fulfil its obligations in the global economy.

The government is committed to ongoing policy review. It is currently reviewing the domestic policies and programs designed to support the feature film and periodical publishing industries. Canada is also reviewing copyright policy in relation to the new World Intellectual Property Organization (WIPO) treaties, in order to ensure copyright protection in a digital environment like the Internet.

In addition, the CRTC is conducting hearings on Canadian content in broadcasting and undertaking an examination of new media in terms of both regulatory issues and the Commission's larger interest in facilitating and supporting the evaluation of this new industry.

The goal of these reviews is to determine the most effective way to support Canadian culture and position the industries for the marketplace in the next century. But not all the changes will occur here at home. While Canada may adjust some of its policies, trade agreements may also have to adjust to recognize cultural diversity.

The Argument for Supportive Cultural Trade Policies

There are precedents for Canada to ask that international trade agreements take into account countries' desire to promote and nurture their cultures.

Historically, trade agreements have been used to address more than economic issues. They are also used to support public policy objectives. Just as the world has agreed to protect biodiversity by preserving animals and plants, it could -- through trade agreements -- decide to promote and preserve cultural and linguistic diversity by allowing countries to support their cultural industries and products.

Critical Issues

In choosing a strategy or approach for international trade and investment negotiations, Canada must ask some key questions that will help identify critical issues:

What sectors, measures or practices in the cultural industries will be affected?

What conditions and obligations would apply? How would domestic cultural policies be affected?

If an agreement only covers certain cultural industries, what impact would it have? Would this precedent create problems for other industries?

How would disputes arise? How would they be handled?

To assess its cultural trade policy options, Canada must find the answers to these questions.

Some Made-in-Canada Approaches

The SAGIT has suggested that there are four possible approaches to cultural trade policy:

1. Negotiate a broad cultural exemption

Canada could seek a broadly-worded cultural industries exemption as part of a new international trade agreement -- an exemption that would be available to all countries who are party to the agreement.

To be effective, the exemption would have to be:

technologically neutral, so it could apply to all current and future technologies

sufficiently detailed to avoid disputes

self-judging

not subject to attack or retaliation

not subject to any standstill or rollback obligations

comprehensive enough to override all of the obligations in the agreement

In its submission to the House of Commons Standing Committee on Foreign Affairs and International Trade on the MAI, SOCAN suggested the following wording for a broad cultural exemption:

Nothing in this Agreement shall be construed to prevent any party from taking any action or measure which it considers necessary to protect or promote its cultural industries.

This same wording could form the basis for a cultural exemption in trade agreements -- which would expand on the cultural exemption now in place in NAFTA and other FTAs.

2. Make no commitment on culture

Canada could decline to make any commitments or accept any obligations on behalf of its cultural sector. Known as a country specific sectoral reservation, this approach could achieve the same legal result as a cultural exemption. However, without the support of other countries, Canada would be subject to continued international pressures to change domestic cultural policies.

3. Create a new international instrument on cultural diversity

Canada could initiate a new international instrument, which would lay out the ground rules for cultural policies and trade, and allow Canada and other countries to maintain policies that promote their cultural industries.

A new cultural instrument would seek to develop an international consensus on the responsibility to encourage indigenous cultural expression and on the need for regulatory and other measures to promote cultural and linguistic diversity. The instrument would not compel any country to take measures to promote culture, but it would give countries the right to determine the measures they will use (within the limits of the agreement) to safeguard their cultural diversity.

A kind of blueprint for cultural diversity and the role of culture in a global world, the instrument would clearly define what was covered, and stress the importance of cultural sovereignty.

The new instrument would identify the measures that would be covered and those that would not, and indicate clearly where trade disciplines would or would not apply. It would also state explicitly when domestic cultural measures would be permitted and not subject to trade retaliation.

To be effective, the new instrument would have to:

be as broad as possible and provide global coverage;

embrace cultural goods as well as cultural services;

include all financial and tax support measures, regulations and controls over foreign investments;

make references to competition policy to address market dominance problems that can adversely affect the vitality of indigenous cultural industry; and

include references to copyright policy, which are not inconsistent with Canada's other intellectual property obligations.

Canada could agree to particular measures to govern cultural industries. This option would allow Canada and other countries to maintain policies that promote their cultural industries, but involves negotiating acceptable measures and practices for each cultural sector, rather than for the cultural industries as a whole.

Time for a New Cultural Instrument

Of the four possible options, the SAGIT favours a new international instrument on cultural diversity. In the SAGIT's view, Canada is at a crossroads in the relationship between cultural policies and international agreements on trade and investment.

Canada must decide: do we define ourselves simply as the producers and consumers of tradeable goods and services? or do we step forward and reaffirm the importance of our cultural diversity, and the ability of each country to ensure that its own stories and experiences will be available to both its own citizens and the rest of the world?

The members of the SAGIT believe it is time to step forward. Just as nations have come together to protect and promote biodiversity, it is time for them to come together to promote cultural and linguistic diversity.

Finding Partners

Whether Canada decides to build on the cultural exemption now in place or pursue a new multilateral cultural instrument, it must consider global trends and attitudes. The choice is not up to Canada alone. We must have the support of other countries.

Although a number of countries share Canada's concerns about cultural sovereignty and are using similar domestic policies and trade measures to support culture, it is worth noting that when the GATS was negotiated, there was not sufficient international support for a broad cultural exemption.

By encouraging discussion on culture and trade, Canada may be able to build alliances with countries that share our view on cultural sovereignty. We may also be able to persuade other countries that, in order to support cultural diversity, trade in cultural goods and services must be treated differently than trade in other goods and services.

Toward Culturally Supportive Trade Policies

The cultural sector has always had to grapple with change -- both technological change and change in the market for cultural goods and services. We have made the transition from radio to television to cable to DTH services, and we have been able to adapt our policies and regulatory systems to anticipate and respond to change. We have also made the change from relatively closed markets to the GATT, the GATS and the free trade agreements. The fast changing, free trading world of the 21st century is again putting new pressures on Canada's cultural industries and its cultural trade policies.

Canada has always been at the forefront of international efforts to liberalize global markets. At the same time, Canada has been a champion of cultural sovereignty and cultural diversity. Once again, our country has an opportunity to lead the debate. With careful preparation and consultation, we can encourage international trade policies that are culturally supportive. In this way, we can ensure that Canada is able to fulfil its international trade obligations and, at the same time, nurture its culture and identity.

Canada has long been a leader in cultural policies. The time has come for Canada to propose a new international cultural instrument, and to call on other countries to promote the cause of cultural diversity. Such a move will enrich us all.

Principles of the Multilateral Trading System

The multilateral trading system is based on the following concepts and principles:

Most Favoured Nation (MFN) status. Countries that are partners to trade agreements agree to grant all their trading partners "most favoured nation" (MFN) status and treat all of them equally.

National Treatment. When a trading partner's goods or services enter a country's market, the receiving country agrees to give them "national treatment" or treat them the same as its own national goods and services.

Transparency/Predictability. Countries agree to make all their trade practices "transparent" or "visible" to their trading partners, and avoid unfair or less visible practices, such as subsidizing industries or dumping products. Countries also agree to negotiate binding agreements that create a predictable trade environment, so foreign companies and investors don't have to worry about countries suddenly throwing up arbitrary barriers to trade.

These principles for international trade agreements are the basis for the GATT, GATS and the FTAs.

Footnotes

Footnote 1

D. Puttnam, The Undeclared War: The Struggle for Control of the World's Film Industry (HarperCollins, 1997).

In July 1998, the government announced a new initiative in support of our long-standing cultural policy objectives for Canadian publishers. It reserves the sale of advertising services directed solely at the Canadian market for Canadian publishers.